European Commission Probes Hungary’s Retail Tax Following Austrian Objections

European Commission Probes Hungary's Retail Tax Following Austrian Objections

The European Commission is set to scrutinize Hungary’s controversial retail tax, which has sparked objections from Austria and Austrian retailer Spar, citing discrimination against foreign retailers and potential EU law breaches.

The European Commission is investigating a grievance regarding Hungary’s levy on retail outlets, promising to “ensure suitable follow-up actions” in response to objections from the Austrian government and the Austrian retailer Spar, according to documents reviewed by Reuters.

Since announcing a special retail tax in 2020, Hungary has seen a rise in taxes imposed on retailers, with the tax rate reaching up to 4.5% of their revenues, stated Spar Austria’s CEO Hans Reisch in communications with the Commission on March 4, 11, and 20.

European Commission Probes Hungary's Retail Tax Following Austrian Objections

In his letters to Margrethe Vestager, the European Union’s antitrust head, Thierry Breton, the industry commissioner, and Paolo Gentiloni, the economy commissioner, Reisch argued that the tax unfairly targets foreign-owned retailers in Hungary, violating EU legislation.

According to Reisch, “Foreign-owned retailers, including Spar Hungary, are subjected to the highest tier of this special tax.” He pointed out that, in comparison, Hungarian retailers, particularly those in franchise networks, generally enjoy lower tax rates ranging from 0 to 1%.

Reisch further highlighted that the tax places foreign retailers in a position where they are forced to operate at a financial loss, as the profit margins in the retail sector are below the 4.5% tax rate. The Hungarian government has not provided an immediate response to these allegations.

On January 31, Austria’s economy and foreign ministers reached out to Ursula von der Leyen, President of the European Commission, expressing concerns over Hungary’s tax practices.

They argued that these practices unfairly disadvantage foreign retailers, hindering their ability to profitably conduct business in Hungary. They emphasized, “The Republic of Hungary’s approach is at odds with the goals of the internal market, leading to significant adverse effects on food retailers from other EU member states.”

When queried about the complaint from Austria, the Commission stated, “The Commission’s services have received a complaint concerning the Hungarian retail tax. They will conduct an analysis and ensure a suitable follow-up is carried out.”

Source: Reuters

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